Early voting outside the Howard School building in downtown Nashville. Early voting concluded Thursday ahead of the local primary election and transit referendum vote on May 1.(Photo: Joey Garrison/ Tennessean)Buy Photo

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Dr. Joseph Haslag is a Professor and Kenneth Lay Chair in Economics at the University of Missouri.

Dr. Arthur B. Laffer is the founder and chairman of Laffer Associates.

Leaders in metropolitan cities know how important it is to build and design a transportation system that allows residents to work, to shop and to play.

Yet, city leaders also have limited resources, and it is therefore essential to combine this fact with aspirations to implement a transportation system. The proposed plan — Let’s Move Nashville — is ambitious, but not very wise when one starts to look at how the resources are being spent.

Nashville is experiencing rapid economic growth. Over time, the accumulation of more people puts stress on the existing transportation system.

On May 1, Nashville will vote on a plan that is estimated to cost $8.95 billion that will increase sidewalks and bicycle ways, improve bus service and build a light-rail system with five corridors and a mile-long tunnel underneath downtown.

The light-rail system accounts for more than 60 percent of the capital expenditures, and that is if there are no cost overruns.

The document supporting this transit plan is simply not believable. The key assumption is that ridership will compare with ridership rates in Houston and Phoenix, which amounts to a doubling of the ridership rates in Dallas.

Even with these incredible numbers, the projected income will require future city governments to subsidize the light-rail system.

Thus, fast forward 20 years and Nashville residents will be saddled with higher taxes not only to pay for the plan, but also to subsidize the light-rail system. This is a recipe for killing Nashville’s growth miracle.

To assess the costs and benefits of the proposed transit plan, it is crucial that we look at the Nashville economy over time. No magical multipliers should be employed. Instead, we need a clear-eyed look at Nashville’s economic history to form realistic projections of the impact that this capital project will have on the city in the years to come.

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Two groups leading the charge for and against the transit plan, Transit for Nashville and NoTax4Tracks, debate over the transit plan
Tennessean

Since 2000, Nashville’s economy has been a growth miracle. Even with the Great Recession, the Nashville MSA’s real GDP has increased at a 3.2 percent average annual rate.

During the 2010s, it is even more remarkable, increasing at a 4.9 percent average annual rate. However, that growth corresponds to more people and more goods and services and, consequently, increased stresses on the roads system and city infrastructure.

It is estimated that around 100 people are moving to Nashville every day, with a projected 1 million new residents by 2040. With such a large net in-migration, traffic and mobility are beginning to suffer — according to the Chamber of Commerce, the average commuting time has increased 1.7 minutes between 2012 and 2017. Therefore, the greater question is what is the best way to improve the transit system, so that Nashville works even better?

We start by assuming that the return to the capital investment project is equal to the average return on investment in Nashville since 2000. According to the transit plan, planned capital investments will occur between 2018 and 2032, and with average gains from such an investment, the Nashville economy will expand.

Indeed, calculations indicate that between 2018 and 2040, the Nashville economy will have produced more than $17.7 billion in additional real GDP compared with its projected economic growth. So far, so good.

Since GDP measures the flow of income paid to people working and owning businesses in Nashville, it is also a useful place to start thinking about the additional revenues that Nashville and Davidson County will realize. Over the past several years, taxes collected in the consolidated city-county government are about 0.67 percent of income.

The upshot is that an extra $17.7 billion in income will result in an expected cumulative sum of $118 million in expected additional taxes.

Some will argue that the extra one-half percent sales tax and other additional taxes that are part of the plan will undoubtedly push city-county government proceeds higher.

For example, suppose that Nashville-Davidson County pushes the taxes collected to one percent of additional income — a 50 percent increase compared to current levels — then the additional taxes would increase to roughly $180 million.

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Put another way, the capital projects will generate a flow of revenues for city government that in 2040 are at most $25 million a year. In 2032, the city projects farebox revenues will be more than $30 million.

Even with the optimistic ridership projections, the combination of additional city revenues from taxes collected and farebox revenue, the city could begin to put about $5 million a year toward the initial capital costs. More likely, ridership will be below projected levels, and the subsidies needed to maintain the transit system will either require that other city services be cut or taxes raised further or in some other fashion.

There are lots of good reasons to be in Nashville. However, people are mobile. By ramping up tax obligations, which are central to the financing plans for the transit proposal, it creates another factor upon which new businesses, and people, will consider their locations.

It is simply cheaper to locate in Brentwood, Franklin, or Hendersonville, for example, than to suffer the tax burdens associated with living in Davidson County. We have seen this out-migration occur time-and-again as city leaders seek the newest and shiniest capital projections instead of the ones that cities really need.

Dr. Joseph Haslag is a Professor and Kenneth Lay Chair in Economics at the University of Missouri in Columbia. Dr. Arthur B. Laffer is the founder and chairman of Laffer Associates, an institutional economic research and consulting firm.